Our view: Budget 2015 – Was it what we expected?

Moore Stephens Markhams tax specialist and business advisor, Belinda Canton outlines the impact for business from Budget 2015.

Rumoured to be the most boring budget in years – and on that basis we were not disappointed. All eyes were on Bill English to see what strategies the government had in store this year for saving money, gathering more taxes, and addressing specific needs across wider New Zealand.

The government has clearly abandoned all attempts to reach a fiscal surplus this year with an incredibly small surplus predicted for 2016.

As has been the strategy in the past, the government let out of the bag an important announcement the week before – that being the property compliance proposals. We believe this was done in order to ensure that the limelight for today stayed firmly with measures to address child poverty and not detract back into the housing market issues that have plagued us for some time.

We have reviewed the Budget and this is our take on the key points:

Children in hardship Public services
Kiwisaver Education sector
Child support Investment
Property Christchurch rebuild

Specific proposals

Children in hardship

The big winner of the day and the full focus of this budget was to address hardship among children in New Zealand’s poorest families. Today’s package of $790 million seeks to strike a balance that offers more support to low-income families while ensuring there remains a strong incentive for parents to move from welfare to work. Effective 1 April 2016:

    • Most sole parents and partners of beneficiaries will have to be available for part-time work of 20 hours a week once their youngest child reaches the age of three.
    • Benefit rates for families with children will rise by $25 per week after tax. This equates to $1,300 per annum. This is the first time in more than 40 years that benefits have increased at a rate higher than inflation.
    • Lower-income families not on a benefit will get up to $12.50 a week extra from Working for Families, and some very low-income working families will get $24.50 extra.
    • The subsidy rate for low-income families will increase from $4 per hour to $5 per hour for up to 50 hours of childcare per week per child. This covers the subsidies for both pre-schoolers and out of school and holiday programmes.

Kiwisaver

The $1,000 kick-start payment to encourage people into Kiwisaver will cease effective from 2pm on 21 May 2015. New members from this day will no longer receive the upfront $1,000. However contributing Kiwisaver members will continue to receive an annual Member Tax Credit of up to $521.

Child Support

Measures in the budget to encourage parents to pay what they owe for their children are in the form of forgiveness of penalties owed by parents to encourage more support to reach the children.

The current debt for child support is around the $3.2 billion with only $700 million of that actually child support – the rest is penalties. The write off of penalties is the result of a more pragmatic ‘fair and reasonable’ test. This test will be applied on a discretionary, case-by-case basis from 1 April 2016.

These measures are being put in place so that more child support goes directly to the children who need it or back to the taxpayers who are paying it by default in the form of a benefit to that child’s family.

Public services

A further $1.7 billion has been earmarked for New Zealand’s public health services. Targeted in the areas of elective surgeries, prevention and treatment of orthopaedic conditions, more palliative care nurses, bowel cancer research, and general cost pressures through population growth.

Education sector

A further $680m has been earmarked for the education sector including continued teacher aide support, to enable more children to attend early childhood education, and boost schools’ operational grants.

Investment

There are a number of initiatives also included as investment in a more productive and competitive economy. These include more funding for the following:

  • Research and development growth grants
  • Establish regional research institutes for scientific research
  • A funding boost for New Zealand’s higher education system
  • Increase the number of labour inspectors and strengthen enforcement of employment law.

Also additional monies have been allocated to fund priority infrastructure such as the extension of ultra-fast broadband, maintenance of the national rail network, $137m earmarked for regional and urban cycleways, and $100m for Lincoln University to rebuild its science facilities.

Christchurch rebuild

The budget has provided an additional $108 million to support the recovery and rebuild of Christchurch. This will fund land clearances to make way for anchor projects to ensure that planned recovery work is implemented over the next four years.

Property

In an attempt to ensure that a fair amount of tax is paid by all, there have been some further tax-related proposals announced that are aimed at improving compliance in the property investment sector.

Subject to consultation, from 1 October 2015:

  • All New Zealanders and non-residents buying and selling any property, other than their main home, must provide a New Zealand IRD number.
  • All non-resident buyers and sellers must provide their tax identification number from their home country along with current identification such as a passport.
  • To ensure our full anti-money laundering rules apply to non-residents before they buy a property, they must have a New Zealand bank account before they can obtain a New Zealand IRD number.
  • A new ‘bright line’ test will be introduced for both New Zealanders and non-residents buying residential property. Under this test any gains derived on the sale of property within two years of purchase will be taxed. This test will not apply where the property sold is the main home, property inherited from a deceased estate, or sold as part of a relationship property settlement.

The Government is also looking at introducing a withholding tax for non-residents selling residential property to be introduced in the middle of 2016.

As part of the property tax compliance measures, further funding has been provided to the IRD to concentrate on property tax compliance.

These property tax measures are expected to take some heat out of the Auckland housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues.

The Government will consult on the details of the measures announced in the budget. An issues paper will be released before legislation is introduced – the rules will then apply to properties purchased on or after 1 October 2015.

If you have any questions on how the 2015 may affect you, or your business get in touch with your Moore Stephens Markhams advisor today.

Published Winter 2015.

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